El Salvador’s Legislative Assembly recently approved a new law regulating the issuance of digital assets other than bitcoin, paving the way for launching securities backed by cryptocurrency.
The bill was first presented in the Legislative Assembly in late November 2022, where the president’s party, Nuevas Ideas, has a large majority. The law had 62 votes in favor and 16 against.
According to the country’s Congress, the regulation aims to “establish the legal framework that provides legal certainty to the transfer operations to any title of digital assets that are used in the issuance of public offerings made in El Salvador.”
A milestone for digital assets in LatAm
According to the law, a digital asset is “a digital representation that can be stored and transferred electronically, using a Distributed Recording Technology system, or similar or analogous technology, in which the records are linked and encrypted to protect the security and privacy of transactions.”
The law also deals with crypto assets, including their issuance — except bitcoin —and operations of tokenized financial products.
Bitcoin is already legal tender in the Central American country, along with the dollar, as of September 7, 2021.
Soon after bitcoin became a legal currency in El Salvador, the nation’s controversial president, Nayib Bukele, said it would issue a bitcoin-backed bond in a $1 billion transaction. The issue would be in March 2022, but this was postponed due to the bad performance of these currencies at the time.
Bitcoin-backed ‘Volcano Bonds’
These bonds became known as Volcano Bonds because, according to Bukele, the funds would go, among other things, to fund bitcoin mining with renewable energy sourced in part from the country’s active volcanoes.
The recently passed law in the Central American country also created the bitcoin Fund Management Agency.
This agency will be related to the Executive Branch through the Ministry of Economy. It will be in charge of “the safeguarding and investing of funds from public offerings of digital assets made by the State of El Salvador and its autonomous institutions and the profits from such public offerings.”
In November of the previous year, El Salvador had already created the National bitcoin Office (ONBTC) to oversee projects with the cryptocurrency. However, one of the main criticisms of the project to use bitcoin in El Salvador’s public accounts is that Bukele is not transparent about the acquisition, sale, and use of reserves in the crypto.
The government plans to launch bitcoin bonds in cryptocurrency, partnering with brokerage Bitfinex.
In a statement, the exchange, linked to the USDT stablecoin, said it will be an infrastructure provider for “a digital token that would help El Salvador raise capital to pay off its sovereign debt, direct debt for the creation of bitcoin mining infrastructure, and to finance the construction of ‘bitcoin city,'” a cryptocurrency-focused city that was announced a year and a half ago but has yet to get off the ground.
As far as the announced accounts go, El Salvador has 2,300 bitcoins and has not sold any of what it has bought, according to Bitfinex. The exchange is investing in local projects and supporting the country’s government in expanding the potential use of bitcoin.
Jorge C. Carrasco is a Contributing Reporter at Fintech Nexus. He reports on fintech, economy, banking, startups, and technology, covering the most impactful stories from a Latin American perspective.
He has contributed to several international publications, such as Foreign Policy, The Spectator Australia, Estadão, Época, Washington Examiner, and Quillette. Originally from Havana, Cuba, he is now based in Brazil.